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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

Supp. To CHAPTER 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.16

Supp. to § 2.16 Reasonable Time for Acceptance

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(A) The following case cites this section:

(1) Brzezinek v. Covenant Ins. Co., 74 Conn. App. 1, 810 A.2d 306 (App. Ct. 2002) , appeal denied, 815 A.2d 674 (Conn. 2003) . On December 10, 1999, the defendant offered to settle the plaintiffs' claim against its insured arising from an auto accident. On December 12, 1999, the plaintiffs delivered signed releases manifesting their acceptance of the offer to their attorney. The attorney did not transmit the releases to the defendant until February 14, 2000. On December 28, 1999, the statute of limitations on the underlying tort claim expired. There was not a stated duration for acceptance of the offer. Because the statute of limitations had expired before the acceptance was transmitted, the defendant argued that the offer had lapsed. The trial court held that the purpose of the defendant in making the settlement offer was to resolve extant claims. Since the plaintiffs' claims were no longer viable after the statute of limitations expired, forbearance from suit was no longer consideration supporting the defendant's promise. Thus, the settlement offer expired upon the expiration of the statute of limitations. The court of appeals recognized the usual rule that, in the absence of a stated time for acceptance, a reasonable time will be implied, which is ordinarily a question of fact under the circumstances. Agreeing with the trial court, the instant court quoted Corbin to the effect that the purpose of the offeror will affect the determination of the time for acceptance. If the offeree knew or should have known of the offeror's purpose, there is no power to accept if that purpose cannot be attained.

To the extent the court held that a settlement offer without a duration cannot survive the expiration of the statute of limitations, not all courts would agree. In Vaskie v. West Am. Ins. Co., 383 Pa. Super. 76, 556 A.2d 436 (1989) , the court rejected the insurer's argument that, as a matter of law, such an offer expires upon the expiration of the statute. It recognized that the passing of the statute of limitations is not irrelevant to the determination of the reasonable time to be ascribed to a settlement offer since the question of reasonable time depends upon the understanding of the offeree (Restatement (Second) of Contracts, § 41, comment b). It is, however, only one circumstance that a court should consider in determining a reasonable time. In the instant case, the court of appeals acquiesced in the trial court's conclusion that, once the statute of limitations expired, there was no possibility of finding consideration to support the insured's promise. The statute of limitations, however, does not go to the validity of the contract. It may be asserted as an affirmative defense to an action on the contract. Moreover, even a promise made after the statute of limitations has expired may be enforceable, albeit courts will often suggest that such promises are enforceable on the basis of moral obligation since a valid claim existed and the new promise, in effect, lifts the bar of the statute. The preferred analysis would consider all of the relevant circumstances to determine a reasonable time for the duration of such an offer. The court of appeals in the instant case did consider the purpose of the offeror to assist it in determining whether the acceptance occurred within a reasonable time. To the extent that the court's holding limits the reasonable time the moment the statute of limitations expired without regard to other circumstances, however, the decision should be disapproved.

The court also dealt with the issues of whether a promisor may require a particular manner of acceptance and whether the plaintiff's forbearance to sue prior to the expiration of the statute of limitations constitute an acceptance by performance. The court's resolutions of these issues are discussed in this supplement at §§ 3.13 and 5.22, respectively.

Supplement to Notes in Main Volume

2. Jennings v. Hatfield, 2005 Tex. App. LEXIS 8730 . The parties were in a traffic accident in which their vehicles collided. The plaintiff brought this action and, prior to a hearing on a motion, the defendant offered to settle the claim for $50,000, the limit of the defendant's insurance policy. The offer did not contain a time for acceptance, but it stated that it was made ''in light of the impending trial'' and with the understanding that the plaintiff would execute a full and final release of any and all claims and a full dismissal of the lawsuit. The plaintiff proceeded to trial resulting in a jury award of $3,673 upon a finding that the parties were equally at fault. The plaintiff then attempted to accept the settlement offer by filing a motion for a new trial to enforce the settlement. The trial court denied the motion. On appeal, the instant court cited § 41(1) of the Restatement (Second) of Contracts in holding that an offeree's power of acceptance does not continue indefinitely but only for a reasonable time. Citing § 41(2), the court recognized that a reasonable time is generally a question of fact under all of the surrounding circumstances, but it may become a question of law where the facts are not in dispute. Considering all of the surrounding circumstances, the court found that the plaintiff's reasonable time for acceptance ended when she proceeded to trial. Even when construed against the drafter, the language of the offer suggested that the offer would end when the trial began or certainly once the jury had reached a verdict. Thus, the offer had expired by its own terms and the plaintiff had no power of acceptance at the time she attempted to exercise that power. The holding of the trial court was affirmed.

3. Sherrod v. Kidd, 155 P. 3d 976 (Wash. App. 2007) . The defendants offered to settle a personal injury action, but the plaintiff proceeded to arbitration which resulted in an award less than the offer of settlement. The plaintiff then sought to accept the settlement offer. The court reiterated the fundamental maxim as noted in § 41 of the Restatement (Second) of Contracts that an offer without a stated duration is open for a reasonable time. While the determination of the length of a ''reasonable time'' is usually a question of fact, the court stated that it could decide the limits of a reasonable time where, as here, there was no dispute as to the essential facts. The purpose of the offeror that is or should be known to the offeree as well as the nature and character of the transaction are important factors in determining what is a reasonable time. Implicit in an offer to settle a personal injury suit is a party's intent to avoid a less favorable result in litigation. Each party assumes a risk in such a transaction. The offeror assumes the risk that a jury, judge or arbitration result will be less favorable that his offer. The offeree assume the risk that the result will be more favorable. The purpose of a settlement is the avoidance of these risks to both parties. The offeror does not assume the risk that its offer would remain open for acceptance after a verdict or award. The court could have added that, in such a case, there would be no consideration for the promise to pay a settlement since no risk (no detriment) would be assumed by the promisee (offeree). The court held that the power of acceptance had expired when the plaintiff sought to accept the offer.